Test bank for principles of microeconomics 3rd australian edition by frank

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Multiple Choice

Odd Numbered - (53) EQUIS: Communication - (28)

Even Numbered - (52) Graduate attribute: Communication - (39)

AACSB: Analyse - (1) Graduate attribute: Problem - (1)

AACSB: Analytic - (65) Graduate attribute: Problem solving - (65)

AACSB: Communicate - (28) Learning Objective: 01-02 Distinguish between microeconomics and macroeconomics, and between positive and normative economics - (3)

AACSB:

Communication - (11) Learning Objective: 01-03 State the scarcity principle and explain its implications for decision making - (9)

Difficulty: Easy - (35) Learning Objective: 01-04 State the cost-benefit principle and apply it to simple economic decisions - (33)

Difficulty: Hard - (21) range of real-world examples - (60) Learning Objective: 01-06 List and explain the common pitfalls that people encounter when applying the cost-benefit principle and recognise these pitfalls in a Difficulty: Medium - (49) Time taken: 2 mins - (36)

EQUIS: Analyse - (65) Time taken: 5 mins - (69)

EQUIS: Analytic - (1)

1 Economics is best defined as the study of:

prices and quantities

inflation and interest rates

→ how people make choices under conditions of scarcity and the results of those choices

wages and incomes

Multiple Choice Question

Question 1 Economics is best defined as the

study of:

AACSB: Communication

Difficulty: EasyEQUIS: CommunicateGraduate attribute: CommunicationLearning Objective: 01-03 State the scarcity principle and explain its

implications for decision making

Time taken: 2 mins

2 For a given question to be considered an economic question, it would need to involve:

explicit prices

making a choice

limited resources

→ limited resources and making a choice

Question 2 For a given question to be considered

an eco

Time taken: 2 mins

3 With limited resources, the best choice of a course of action takes into account:

only the benefits of making that choice

the least possible cost of making that choice

→ both the benefits and the cost of making that choice

what gives the greatest pleasure

Question 3 With limited resources, the best

choice of a

Difficulty: EasyEQUIS: CommunicateGraduate attribute: CommunicationLearning Objective: 01-04 State the cost-benefit principle and apply it to

simple economic decisions

Time taken: 2 mins

4 The scarcity principle indicates that:

no matter how much one has, it is never enough

compared with 100 years ago, individuals have less time today

→ with limited resources, having more of ‘this' means having less of ‘that'

the wealthier one is, the fewer the number of trade-offs one must make

Question 4 The scarcity principle indicates

that:

Difficulty: EasyEQUIS: CommunicateGraduate attribute: CommunicationLearning Objective: 01-04 State the cost-benefit principle and apply it to simple

economic decisionsTime taken: 2 mins

5 The logical implication of the scarcity principle is that:

one will never be satisfied with what one has

as wealth increases, making trade-offs becomes less necessary

as wealth decreases, making trade-offs becomes less necessary

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→ choices must be made.

Question 5 The logical implication of the

scarcity prin

Time taken: 2 mins

6 The principle of scarcity applies to:

the poor exclusively

all consumers

all firms

→ everyone: consumers, firms, governments and nations

Question 6 The principle of scarcity

applies to:

Difficulty: EasyEQUIS: CommunicateGraduate attribute: CommunicationLearning Objective: 01-03 State the scarcity principle and explain its implications

for decision makingTime taken: 2 mins

7 The scarcity principle applies to:

→ all decisions

only market decisions; e.g buying a car

only non-market decisions; e.g watching a sunset

only the poor

Question 7 The scarcity principle applies

to:

Difficulty: EasyEQUIS: CommunicateGraduate attribute: CommunicationLearning Objective: 01-03 State the scarcity principle and explain its implications for

decision makingTime taken: 2 mins

8 Dr Smith makes around $200 000 per year and lives in town, close to his medical practice Allen works as dishwasher in a restaurant next to Dr Smith's office, where he makes $13 per hour Allen has to drive two hours every day to get to work, but lives in a much nicer neighbourhood than Dr Smith, who earns much more than Allen The most likely explanation for this is that:

the opportunity cost of Dr Smith's time is lower than that of Allen's time

the scarcity principle applies to Dr Smith, but does not apply to Allen

→ the opportunity cost of Dr Smith's time is higher than that of Allen's time

Allen loves to drive but Dr Smith doesn't

Question 8 Dr Smith makes around $200 000 per

year and

AACSB: AnalyticDifficulty: EasyEQUIS: AnalyseGraduate attribute: Problem solvingLearning Objective: 01-04 State the cost-benefit principle and apply it to

Time taken: 2 mins

9 Josh wants to go to the football game this weekend, but he has an essay due on Monday It will take him the whole

weekend to write the essay Josh decides to stay at home and work on the essay According to the scarcity principle, the reason Josh doesn't go to the game is that:

the marginal benefit of writing the essay exceeds the marginal benefit of going to the football game

writing the essay is easier than going to the game

→ Josh doesn't have enough time for writing the essay and going to the game.

it's too expensive to go to the game

Question 9 Josh wants to go to the football game

this w

Time taken: 2 mins

10 Whether studying the size of the Australian economy or the number of children a couple will choose to have, the unifying concept is that wants are:

limited, resources are limited, and thus trade-offs must be made

→ unlimited, resources are limited, and thus trade-offs must be made

unlimited, resources are limited for some but not for others, and thus some people must make trade-offs

unlimited, resources are unlimited, and thus nirvana has been reached

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Question 10 Whether studying the size of the

Australian

Time taken: 2 mins

11 The cost-benefit principle indicates that an action should be taken:

if the total benefits exceed the total costs

if the average benefits exceed the average costs

if the net benefit (benefit minus cost) is zero

→ if the extra benefit is greater than or equal to the extra costs

Question 11 The cost-benefit principle indicates

that an

Time taken: 2 mins

12 Emma kept on arranging flowers for her shop ‘Flora World' until the extra costs of her time spent on arranging a bunch was equal to the extra benefit she gets from selling a bunch This can be described by the:

scarcity principle

no-free-lunch principle

marginal principle

→ cost-benefit principle

Question 12 Emma kept on arranging flowers for

her shop

AACSB: Communicate

Difficulty: EasyEQUIS: CommunicationGraduate attribute: CommunicationLearning Objective: 01-04 State the cost-benefit principle and apply it to

Time taken: 2 mins

13 Choosing to study at university so that the extra benefit (increased possibility of getting a job) equals the extra cost

(forgone income while at university) is:

→ an application of the cost-benefit principle

an application of the scarcity principle

the relevant opportunity cost

less desirable than studying at an overseas university

Question 13 Choosing to study at university so

that the

AACSB: Communicate

Time taken: 2 mins

14 The scarcity principle indicates that and the cost-benefit principle indicates

→ choices must be made; how to make the choices

choices must be made; how to calculate the costs of those choicesrare goods are expensive; the costs should outweigh the benefits of the choicesrare goods are expensive; the costs should not affect the choice made

Question 14 The scarcity principle indicates that

AACSB: Communicate

Time taken: 2 mins

15 The cost-benefit principle:

implies that the cost of all alternatives should not be included when choosing among alternatives.

implies that the cost of all alternatives should be included when choosing among alternatives

→ states that an action should be taken only if the extra benefit is at least as great as the extra cost

states that an action should be taken only if the extra benefit is less than the extra cost

Question 15 The cost-benefit

principle:

AACSB: Communicate

Difficulty: EasyEQUIS: CommunicationGraduate attribute: CommunicationLearning Objective: 01-04 State the cost-benefit principle and apply it to simple

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16 Wang Dinh delivers local newspapers eight hours a week For every hour of newspaper delivery he receives $10 dollars Recently he was offered a job delivering pizzas, which would pay $4 per pizza Given school homework, he has only eight hours a week Using the cost-benefit principle, how many pizzas should he deliver per hour to get same benefit as the newspaper delivery task?

Wang Dinh shouldn't deliver pizzas at all because of health concerns

→ Wang Dinh should deliver at least 2.5 pizzas per hour

Wang Dinh should deliver at least 10 pizzas per hour

Wang Dinh should deliver at least 20 pizzas per hour

Question 16 Wang Dinh delivers local newspapers

eight ho

AACSB: AnalyticDifficulty: MediumEQUIS: AnalyseGraduate attribute: Problem solvingLearning Objective: 01-04 State the cost-benefit principle and apply it to

Time taken: 5 mins

17 Janie must either mow the lawn or wash clothes, earning her a benefit of $30 or $45, respectively She dislikes both

equally and they both take the same amount of time Janie will therefore choose to because the economic surplus is

mow; greater

mow; smallerwash; smaller

Question 17 Janie must either mow the lawn or

wash cloth

Time taken: 5 mins

18 Jason can copy 10 pages per minute at the office where he works or take it to the printing shop, 10 minutes' walk from his workplace, which can copy 20 pages per minute and charges him one cent per page If Jason's hourly wage is $25 and he needs to distribute 600 pages to other workers, he would:

→ benefit more by going to the printing shop

incur a higher cost going to the printing shop

not go to the printing shop as that would waste time

copy some himself and take some to the printers

Question 18 Jason can copy 10 pages per minute

at the of

AACSB: AnalyticDifficulty: HardEQUIS: AnalyseGraduate attribute: Problem solvingLearning Objective: 01-04 State the cost-benefit principle and apply it to

Time taken: 5 mins

19 Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending

an equal amount of money to go to a movie The opportunity cost of going to the beach is:

zero, because the money she spent was for food, drinks and an umbrella rather than to enter the beach

the $12 she spent on the umbrella, food and drinks

→ the movie she missed seeing

the movie she missed seeing, plus the $12 she spent on the umbrella, food and drinks

Question 19 Jen spends her afternoon at the

beach, payin

Time taken: 5 mins

20 The opportunity cost of an activity is the value of:

→ the next-best alternative forgone

the least-best alternative forgone

the difference between the chosen activity and the next-best alternative forgone

the alternative one would have preferred to choose

Question 20 The opportunity cost of an activity

is the v

AACSB: Communicate

Time taken: 2 mins21

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Lauren is thinking about going to the cinema tonight to see the new Harry Potter film A ticket costs $15 and she will have

to cancel her dog-sitting job that pays $30 The cost of seeing the movie is:

$15

$30

$45 minus the benefit of seeing the movie

Question 21 Lauren is thinking about going to the

cinema

Time taken: 5 mins

22 Amy has bought some land for $100 000 and is deciding to build a house this year If she hires a building supervisor it will cost her $20 000, but if she does the supervising herself she will have to give up half of her work time, for which she is paid an annual salary of $40 000 Based on this information, which of the following is true?

She will hire a building supervisor

She will supervise the building herself

Amy's cost of building the house will be the same even if she supervises the building herself

→ All of the given answers

Question 22 Amy has bought some land for $100

000 and is

Time taken: 5 mins

23 Alpha Music Company paid $100 000 to Beta Bestrem for recording a single album Now Alpha is thinking of hiring a distributor for $25 000 to sell CDs of that album to various music shops The cost of producing each CD is $2 and cost of distributing to music shops is $1 If Alpha can sell a CD for $5, how many CDs should they sell to cover the opportunity cost of distributing CDs to the shops?

56 250

50 000

25 000

Question 23 Alpha Music Company paid $100 000

to Beta Be

Time taken: 5 mins

24 In general, rational decision making requires one to choose the actions that yield the:

largest total benefit

smallest net benefit

smallest average cost

→ largest economic surplus

Question 24 In general, rational decision making

require

AACSB: Communicate

Time taken: 2 mins

25 Microeconomics is a study of:

the aggregate economy

measuring cost and benefit for all activity

exports and imports

→ individual consumer, firm and market behaviour

Question 25 Microeconomics is a

study of:

AACSB: Communicate

Difficulty: EasyEQUIS: CommunicationGraduate attribute: CommunicationLearning Objective: 01-02 Distinguish between microeconomics and macroeconomics,

and between positive and normative economics

Time taken: 2 mins

26 Lisa wants to go to a friend's house this evening, but has promised her mother that she will clean the house during that time Her brother, Bart, has offered to clean the house for her if she will pay him $20 Lisa replies, ‘I'll pay you $10 - and not a cent more!' Which of the following statements is correct?

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The $20 represents Lisa's benefit of going to her friend's house this evening.

→ The $10 represents Lisa's opportunity cost of cleaning the house this evening

The $20 represents Bart's benefit and Lisa's opportunity cost of going to her friend's house this evening

The difference between the $20 Bart has asked for to clean the house and the $10 Lisa has offered represents the economic surplus of going to her friend's house this evening

Question 26 Lisa wants to go to a friend's house this

evening,

Time taken: 5 mins

27 On a long-weekend holiday, all students in Jack's class will be hiring a bus from Wonder Wheels to go to Phillip Island from the Melbourne CBD area Warren, the owner of Wonder Wheels, will have to be paid $600 for each day and Jack's group will stay on Phillip Island for three days Instead of paying for all three days, Jack made an offer of $1200 for the return trip, as while they are on Phillip Island they are not going to use the bus at all Wonder Wheels pays the bus driver

$300 per day, uses $100 worth of petrol for a one-way trip to Phillip Island If Wonder Wheels don't take the offer there is

no other booking for the bus for three days What would be Warren's likely response?

Warren would not accept the offer as his total cost is higher than total benefit

→ Warren would accept the offer

Warren wouldn't want to accept the offer as the bus sits idle for one day

None of the given answers

Question 27 On a long-weekend holiday, all

students in J

Time taken: 5 mins

28 The use of economic models such as the cost-benefit principle means economists believe that:

this is exactly how people choose between alternatives

→ this is a reasonable abstraction of how people choose between alternatives

those who explicitly make decisions this way are smarter

with enough education, all people will start to explicitly make decisions this way

Question 28 The use of economic models such as

the cost-

AACSB: Communicate

Time taken: 2 mins

29 Jenna decides to see a movie, which costs her $15 for the ticket and has an opportunity cost of $35 After the movie, she says to one of her friends that the movie was not worth it Apparently:

Jenna failed to apply the cost-benefit model to her decision

Jenna was not rational

Jenna had never studied economic decision making

→ Jenna overestimated the benefits of the movie

Question 29 Jenna decides to see a movie, which

costs h

AACSB: CommunicateDifficulty: MediumEQUIS: CommunicationGraduate attribute: CommunicationLearning Objective: 01-04 State the cost-benefit principle and apply it to

Time taken: 2 mins

30 Most of us make sensible decisions most of the time, because:

we know the cost-benefit principle

→ unconsciously we are weighing costs and benefits

most people know about the scarcity principle

we conduct hypothetical mental auctions when we make decisions

Question 30 Most of us make sensible decisions

most of t

AACSB: Communicate

Time taken: 2 mins

31 Suppose a person makes a choice that seems inconsistent with the cost-benefit principle Which of the following

statements represents the most reasonable conclusion to draw?

→ The person (explicitly or implicitly) overestimated the benefits or underestimated the costs, or both

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The cost-benefit principle is rarely true.

The person does not grasp how decisions should be made

The person is simply irrational

Question 31 Suppose a person makes a choice that

seems i

AACSB: CommunicateDifficulty: MediumEQUIS: CommunicationGraduate attribute: CommunicationLearning Objective: 01-04 State the cost-benefit principle and apply it to

Time taken: 5 mins

32 Economics models claim to be a(n):

→ reasonable abstraction of how people make choices, highlighting the most important factors

exact replication of the decision-making process people use

interesting blackboard exercise with little application to the real world

absolutely correct description of the world

Question 32 Economics models claim to be

a(n):

AACSB: Communicate

Difficulty: EasyEQUIS: CommunicationGraduate attribute: CommunicationLearning Objective: 01-04 State the cost-benefit principle and apply it to simple

33 If one fails to account for opportunity costs in decision making, the results gained by applying the cost-benefit rule will be flawed because:

the benefits will be overstated

→ the costs will be understated

the benefits will be understated

the benefits and costs will be understated

Question 33 If one fails to account for

opportunity cost

AACSB: Communicate

Time taken: 2 mins

34 Your classmates from the University of New South Wales are planning to go to the Gold Coast for the break and you are undecided about whether you should go with them The round-trip airfares are $600, but you have frequent-flyer points worth $500 that you could use to pay part of the airfare All other costs for the vacation are exactly $900 The most you would be willing to pay for the trip is $1400 Your only alternative use for your frequent-flyer points is for your trip to Melbourne two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend The Sydney-Melbourne round-trip airfares are $450 If you do not use the frequent-flyer points to fly, should you go to the Gold Coast?

Yes, your benefit is greater than your cost

→ No, your benefit is less than your cost

Yes, your benefit is equal to your cost

None of the given answers

Question 34 Your classmates from the

University of New S

AACSB: AnalyticDifficulty: HardEQUIS: AnalyseGraduate attribute: Problem solvingLearning Objective: 01-06 List and explain the common pitfalls that people encounter when applying the cost-benefit principle and recognise these pitfalls in a

range of real-world examples

Time taken: 5 mins

35 Your classmates from the University of New South Wales are planning to go to the Gold Coast for the break and you are undecided about whether you should go with them The round-trip airfares are $600, but you have frequent-flyer points worth $500 that you could use to pay part of the airfare All other costs for the vacation are exactly $900 The most you would be willing to pay for the trip is $1400 Your only alternative use for your frequent-flyer points is for your trip to Melbourne two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend The Sydney-Melbourne round-trip airfares are $450 What is the opportunity cost of using the points for the Gold Coast trip?

$100

$500

$600

University of New S

Test Bank for Principles of Microeconomics 3rd Australian Edition by Frank Full file at https://TestbankDirect.eu/

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Time taken: 5 mins

36 Your classmates from the University of New South Wales are planning to go to the Gold Coast for the break and you are undecided about whether you should go with them The round-trip airfares are $600, but you have frequent-flyer points worth $500 that you could use to pay part of the airfare All other costs for the vacation are exactly $900 The most you would be willing to pay for the trip is $1400 Your only alternative use for your frequent-flyer coupon is for your trip to Melbourne two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend If the Sydney-Melbourne round-trip air fair is $350, should you go to the Gold Coast?

No, there is a loss of $50

→ Yes, there is an economic surplus of $150

University of New S

Time taken: 5 mins

37 You paid $35 for a ticket (which is non-refundable) to see JAM, a local rock band, in concert on Saturday It turns out that

$35 is also the exact value you place on attending the concert Your boss called and she is looking for someone to cover a shift on Saturday at the same time as your concert You will have to work four hours and she will pay you time-and-a-half, which is $9 per hour Should you go to the concert instead of working Saturday?

Yes, your benefit is more than your cost

→ No, your benefit is less than your cost

Yes, your benefit is equal to your cost

No, because there are no benefits from the concert

Question 37 You paid $35 for a ticket

(which is non-refu

AACSB: AnalyticDifficulty: HardEQUIS: AnalyseGraduate attribute: Problem solvingLearning Objective: 01-06 List and explain the common pitfalls that people encounter when applying the cost-benefit principle and recognise these pitfalls in a range of real-

world examplesTime taken: 5 mins

$35 is also the exact value you place on attending the concert Your boss called and she is looking for someone to cover a shift on Saturday at the same time as your concert You will have to work four hours and she will pay you time-and-a-half, which is $9 per hour What is the opportunity cost of going to the concert?

$9

$18

$35

(which is non-refu

AACSB: AnalyticDifficulty: MediumEQUIS: AnalyseGraduate attribute: Problem solvingLearning Objective: 01-06 List and explain the common pitfalls that people encounter when applying the cost-benefit principle and recognise these pitfalls in a range of real-

$35 is also the exact value you place on attending the concert Your boss called and she is looking for someone to cover a shift on Saturday at the same time as your concert You will have to work four hours and she will pay you time-and-a-half, which is $9/hr Your economic surplus of going to work on Saturday is:

$0

$9

$35

(which is non-refu

AACSB: AnalyticDifficulty: HardEQUIS: AnalyseGraduate attribute: Problem solvingLearning Objective: 01-06 List and explain the common pitfalls that people encounter when applying the cost-benefit principle and recognise these pitfalls in a range of real-

40 Matt has decided to purchase his textbooks for the semester His options are to purchase the books via the Internet with next-day delivery to his home at a cost of $175, or to drive to uni tomorrow to buy the books at the bookstore at a cost of

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$170 Last week he drove to uni to buy a concert ticket because they offered 25 per cent off the regular price of $16 Matt's benefit of buying his books at the bookstore is at least:

$4

$5

$170

Question 40 Matt has decided to

purchase his textbooks f

$170 Last week he drove to uni to buy a concert ticket because they offered 25 per cent off the regular price of $16

According to the cost-benefit principle:

it would not be rational for Matt to drive to campus to purchase the books because the $5 saving is only 2 per cent of the cost of the books, and that is much less than the 25 per cent he saved on the concert ticket

it would be rational for Matt to drive to campus because it costs less to buy the books there than via the Internet

→ it would be rational for Matt to drive to campus because the $5 saving is more than he saved by driving there to buy the concert ticket.

it would not be rational for Matt to drive to campus to purchase the books because the cost of gas and his time must certainly be more than the $5 he would save

Question 41 Matt has decided to purchase his

textbooks f

Time taken: 5 mins

$170 Last week he drove to uni to buy a concert ticket because they offered 25 per cent off the regular price of $16

Assume the minimum that Matt would be willing to accept to drive to the university is equal to the amount he saved on the concert ticket What would be the amount of his economic surplus if he bought his textbooks at the university bookstore rather than via the Internet?

$5

$50

$20

Question 42 Matt has decided to purchase his

textbooks f

AACSB: AnalyticDifficulty: HardEQUIS: AnalyseGraduate attribute: Problem solvingLearning Objective: 01-04 State the cost-benefit principle and apply it to

Time taken: 5 mins

43 A cost that we cannot avoid whether or not an action is taken is called a(n):

opportunity cost

average cost

marginal cost

Question 43 A cost that we cannot

avoid whether or not a

AACSB: Communicate

Difficulty: EasyEQUIS: CommunicationGraduate attribute: CommunicationLearning Objective: 01-06 List and explain the common pitfalls that people encounter when applying the cost-benefit principle and recognise these pitfalls in a range of real-

44 Suppose that you have purchased a round-trip ticket to Tasmania for the break The ticket is non-refundable and cannot be changed Your family is having a reunion during the same week and you would like to spend time with your family How does the price of the Tasmania trip affect your decision of whether to go to Tasmania or go to the family reunion?

→ It doesn't, because it's a sunk cost

It does; you will lose money if you go to the family reunion

It doesn't, because it's the opportunity cost

It does, because the cost-benefit principle takes all cost into account

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Question 44 Suppose that you have

purchased a round-trip

AACSB: CommunicateDifficulty: MediumEQUIS: CommunicationGraduate attribute: CommunicationLearning Objective: 01-06 List and explain the common pitfalls that people encounter when applying the cost-benefit principle and recognise these pitfalls in a range of real-

45 Mike gives a non-refundable $100 to ACE Adventures to reserve a raft for a group white-water rafting trip on the New River The raft has room for five people He sells three rafting tickets at $25 each for a total of $75 Mike usually sells four tickets at $25 each and goes on the trip for free Should Mike cancel the trip?

No, because he is making $75

Yes, because the $100 is lost no matter what

→ No, because losing $25 is better than losing $100

Yes, because he will lose $25 on the venture

Question 45 Mike gives a

non-refundable $100 to ACE Adve

AACSB: CommunicateDifficulty: MediumEQUIS: CommunicationGraduate attribute: CommunicationLearning Objective: 01-06 List and explain the common pitfalls that people encounter when applying the cost-benefit principle and recognise these pitfalls in a

Time taken: 5 mins

46 Suppose Darlene purchased a computer two weeks ago for $2000 Today she can purchase a new computer that is twice as fast for $1400 She also discovers that the current computer sells second-hand for $1100 The sunk cost of her current computer is:

$0

$1100

$2000

Question 46 Suppose Darlene purchased

a computer two wee

AACSB: CommunicateDifficulty: MediumEQUIS: CommunicationGraduate attribute: CommunicationLearning Objective: 01-06 List and explain the common pitfalls that people encounter when applying the cost-benefit principle and recognise these pitfalls in a

Time taken: 5 mins

47 Ontel engineers proposed developing a 2-gigahertz microprocessor in early 1999 at a cost of $20 million for a working prototype By mid-2000, the $20 million had been spent with no prototype The engineers request an additional $10

million to finish the project For convenience, assume the marginal cost of producing the chip once it is developed is zero

A senior executive at Ontel argues that the engineers should only be granted the additional $10 million if Ontel can collect

$30 million in revenues after the chip is developed The executive's argument is:

correct

incorrect; the $20 million already spent is a fixed cost and should be ignored

→ incorrect; the $20 million already spent is a sunk cost and should be ignored

possibly correct; insufficient information to say

Question 47 Ontel engineers proposed

developing a 2-giga

AACSB: AnalyseDifficulty: MediumEQUIS: AnalyticGraduate attribute: ProblemLearning Objective: 01-06 List and explain the common pitfalls that people encounter when applying the cost-benefit principle and recognise these pitfalls in a range of

real-world examplesTime taken: 5 mins

In early 1999, sunk costs of this project were and in mid-2000, sunk costs were

0; $30 million

$20 million; $30 million

$20 million; $10 million

developing a 2-giga

AACSB: CommunicateDifficulty: MediumEQUIS: CommunicationGraduate attribute: CommunicationLearning Objective: 01-06 List and explain the common pitfalls that people encounter when applying the cost-benefit principle and recognise these pitfalls in a range of real-

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In deciding whether to continue the 2-gig chip, Ontel executives should compare the to the expected

revenues

$20 million spent plus the extra $10 million

$20 million spent

→ extra $10 million

$20 million spent plus the extra $10 million plus $5 million for cost overruns

developing a 2-giga

AACSB: AnalyticDifficulty: HardEQUIS: AnalyseGraduate attribute: Problem solvingLearning Objective: 01-06 List and explain the common pitfalls that people encounter when applying the cost-benefit principle and recognise these pitfalls in a range of

50 Onetel engineers proposed developing a 2-gigahertz microprocessor in early 1999 at a cost of $20 million for a working prototype By mid-2000, the $20 million had been spent with no prototype The engineers request an additional $10

If the expected revenues of a 2-gigahertz chip are $15 million, Ontel should:

stop development and take a $20 million loss

finish development and earn a $5 million profit

finish development and earn a $5 million loss

→ finish development and take a $15 million loss

Question 50 Onetel engineers proposed

developing a 2-gig

AACSB: AnalyticDifficulty: HardEQUIS: AnalyseGraduate attribute: Problem solvingLearning Objective: 01-06 List and explain the common pitfalls that people encounter when applying the cost-benefit principle and recognise these pitfalls in a range of

51 The marginal benefit of an activity is the:

total benefit divided by the level of the activity

change in the activity divided by the change in benefits

→ extra benefit associated with an extra unit of the activity

total benefit associated with an extra unit of the activity

Question 51 The marginal benefit of

an activity is the:

AACSB: Communicate

52 If the marginal costs of one, two and three hours of talking on the phone are $50, $75 and $105, respectively, the total costs for the three hours of talking, respectively, are:

$50, $150 and $315

$50, $41.67 and $115

$50, $175 and $405

Question 52 If the marginal costs of

one, two and three

53 If the total benefits of watching one, two and three football games on TV are 100, 120 and 125, respectively, the marginal benefits are:

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Question 53 If the total benefits of

watching one, two a

54 The extra benefit that comes from an extra unit of activity is called the of the activity

benefit

marginal costaverage benefit

Question 54 The extra benefit that

comes from an extra u

AACSB: Communicate

55 The marginal cost of an activity is the:

→ change in the cost of the activity that results from an extra unit of the activity

same as the total cost of the activity

ratio of total costs to the level of the activity

change in the level of the activity divided by the change in the costs of the activity

Question 55 The marginal cost of an

activity is the:

AACSB: Communicate

56 The extra cost that results from an extra unit of an activity is the:

marginal benefit

marginal surplus

same as the opportunity cost

Question 56 The extra cost that results

from an extra un

AACSB: Communicate

57 Dividing the total cost of n units of an activity by n reveals the:

average benefit

marginal cost

units per cost

→ average cost

Question 57 Dividing the total cost of

n units of an act

AACSB: Communicate

58 Six Flags, an amusement park, runs a promotion in which you can get two season tickets for the price of one You and your friend both paid one half of the price and got the tickets but you visit the park more often than your friend Compared with your friend, your:

sunk cost is lower

marginal cost of a visit to the park is lower

sunk cost is the same but your marginal cost is lower

→ average cost per visit is lower

AACSB: AnalyticDifficulty: Easy

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